Analysis on the Oil Price Mechanism and its Fluctuation Jianjun... · · 2015-08-06Analysis on...
Transcript of Analysis on the Oil Price Mechanism and its Fluctuation Jianjun... · · 2015-08-06Analysis on...
1SINOCHEM
Sinochem Petroleum Exploration & Production Co. Ltd. Cui Jianjun
Analysis on the Oil Price Mechanism and its Fluctuation
San Francisco, USAIntercontinental Mark Hopkins
Hotel Sep. 10th, 2007
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Oil Price Mechanism
Analysis on the Oil Price Fluctuation
Conclusion
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Financial Institutes
Traders
Producers and consumers
Mutual Agreement between Supplier and Consumer
Independent Price Assessment
Futures Market and Standard Contract
Trading between Supplier-Consumer
Spot Market
Forward Contract
Swap + OTC Option
Futures and Option
1960s-1970s, major participants of the oil market determine long-term price
In1980s,standard oil price is determined by traders in the spot market
1990s-now, standard oil price is inducted by the derivative market
Market Size & Participants
Time
Transformation of theOil Pricing Mechanism
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Jul-Aug,2003:$27-30Oct-Nov,2004:$49-55
Aug-Sep,2005:$60-69
Jun-Jul,2007:$65-78
Jul-Aug,2006:$70-78
� QCLc1, QLCOc1 2002-9-24 - 2007-7-26 (NYC)
Line, QCLc1, Last Trade(Last)2007-7-12, 72.75Line, QLCOc1, Last Trade(Last)2007-7-12, 75.64
� �USDBbl
.1224
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Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q32002 2003 2004 2005 2006 2007
Historical Fluctuation of the Oil Price
Oil price has experienced much more spikes and slumps, with sharp fluctuation in its history.
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Three Influencing Factors of International Oil Price
The changing sales
structure inducts oil
priceThe changing
market participants
structure guides oil price
The changing supply-demand
structure dominates oil
price
Monopoly brings both profit and threat to the “7Oil Sisters”. Tempted by huge profit, many oil companies rose. Producers in Latin America, Middle East and Africa established “OPEC”, obtaining much more say of official pricing as their “oil weapon”.
The price fluctuation of oil as a commodity, follows market law
Before 1950s,the” 7 Oil sisters” monopolize the oil pricing mechanism. From 1960s to 1970s and 1980s, the monopoly was gradually smashed up, “Official Selling Price”and ”Reference Price”appeared. In 1978,the oil futures market and its weighted average price became barometer of the spot market.Nowadays, oil price mainly follows the futures price in NYMEX and ICE.
Oil Price
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The Oil Price Fluctuates at High Level
2007 2008 2010
High 70.2 75 72.3
Low 56.5 50 43
Mean 62.78 61.22 53.60
Reuters 33 Institutes Forecast for WTI Yearly Average Price ($/bbl)
Since 2003,oil price has almost kept spiking, hitting a record of $78.In 2006, the average price of DTD Brent is $65.14,a 20% increase of that in 2005.
The fundamentals such as supply-demand balance support oil price at a high level. Geopolitics, changeable weather, and speculating funds intensify price fluctuation. In 2006, the price shock exceeds $ 20/bbl.
It is forecasted that the oil price in 2H 2007 will remain high. (WTI $65-75),and will possibly break a new record. In middle term, price will come down but still at a relatively high level.
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World Oil Demand
With rapid growth of global economy, world oil demand increasessteadily. According to IEA forecast, world energy demand will increase at the highest speed in 2008.
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According to “BP Energy Statistics 2007”, in 2006, America imports 671 million tons of oil accounting for 25.9% of world total;Japan imports 257 million tons, accounting for 9.9%;China imports 192 million tons accounting for 7.4%;China exports 23.1 million tons of oil. The importing volume in other parts of the world accounts for 57.8%.
Crude ProductImport Export Import Export
America 502.7 2.7 168.2 60.4 Canada 42.3 88.8 13.5 26.1 Mexico - 97.5 20.1 6.9
Mid-south America 33.7 116.9 24.0 63.8
Europe 533.6 29.2 131.4 75.9 former Sovie - 274.6 5.6 78.5 Middle East 10.1 884.6 7.3 116.7 North Africa 9.1 128.2 8.4 31.1 West Africa 2.9 226.5 7.5 7.5 Australia 25.1 6.6 13.9 4.1
China 145.8 9.6 45.9 13.5 Japan 208.6 - 48.4 5.5
Singapore 52.8 0.9 55.8 58.3 Other parts in Asia-Pacific Region 340.3 43.6 101.5 72.0
World Total 1932.6 1932.6 657.8 657.8
million tons
Figures of Major Oil Importers
Cr ude
26. 01%
7. 54%
10. 79%
55. 65%
Amer i ca Chi na JapanOt her Par t s
Pr oduct
60. 09%
7. 36%
6. 98%
25. 57%
Amer i caChi na JapanOt her Par t s
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World Oil Reserves could SatisfyLong-Term Demand
World Conventional Hydrocarbon Reserves and Its Increase Potentials
CategoryCrude
(kmm bbl)Crude
(kmm tons)Natural
Gas(104kmm
m3)
Natural Gas
(kmm tons)
NGL(kmm bbl)
NGL(kmm tons)
Undiscovered Conventional Reserves 7320 1002.74 147.04 1186.3 2070 283.56Conventional Reserves Increase 6880 942.47 103.58 835.61 420 57.53Remaining Reserves 8910 1220.55 135.64 1094.52 680 93.15Cumulative Production 7100 972.61 49.58 400 70 9.59Total 30210 4138.36 435.85 3516.44 3240 443.84
Source: USGS, 2000.
According to “BP Energy Statistics 2007”, world remaining proven reserves in 2006 is 1200.9 billions barrels , an increase of 8% compared with 1114.7 billion barrels in 2000, and an increase of 15% in 1996. Over decades, world oil reserve-production ratio is over 40 years,the remaining recoverable reserves still could satisfy long-term supply-demand balance.World oil and gas reserves are rich. Due to the hydrocarbon reserves analysis of USGS in 2000,world ultimate recoverable reserves is 413.8 billion tons (not including 44.4 billion tons of NGL),conventional reserves increase is 94.2 billion tons,undiscovered conventional crude reserves is 100.3 billion tons.It was said that human beings only have consumed 4500 billion barrels of crude oil, accounting for 18% of the total reserves. With the current consuming level, world oil reserves could be used for 140 years from now on. There is no need to worry about world crude reserves exhausting in the future decades.
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The Oil Price Divorces from Oil Producing Cost
Per barrel cost $ 3.96, in which
exploration $0.96,developme
nt $1.07, production $1.93
Russia
Per barrel cost $11.92,in which exploration $3,
development $ 3.87, production $5.05
North Sea(UK, Norway)
Per barrel cost $10.95,in which exploration $2.47,development
$3.54,production $4.94
Deep water in west Africa
Per barrel cost $9.87,in which exploration
$1.93,development $4.40, production $3.54
Mexico Gulf
Per barrel cost $ 9.02,in which
exploration$1.50,development $3.01 production $4.51
Latin America(Brazil, Columbia,
Bolivia) Per barrel cost $ 8.48,in which
exploration$1.93,development $3.01 production $3.54
Middle Europe
Caspian Sea
Per barrel cost $ 9.02,in which exploration$1.50,
development $3.01 production $4.51
OPEC in Middle East
Per barrel cost $ 9.02,in which
exploration$1.50,development $3.01 production $4.51
OPEC in North Africa
Other OPEC Members (onshore oilfields)
Per barrel cost $ 4.93, in which
exploration$0.96,development
$1.50,production $2.47
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Oil Producing Cost
Operating Cost Capital Cost Producing Cost
Heavy Oil in Califonia 6-10 3-4 12
Heavy Oil in West Canada 7-10 3-4 13
Oil Sand in Alberta 9-12 3-5 15
Heavy Oil in Orinoco, Venezuela 8-10 5-7 15
Heavy Oil in Mexico 2 5-6 8
Mexican Gulf in America (water depth more than 200m) 4 4-6 9
Brazil (water depth more than 200m) 4 3-5 8
Angola(Girassol Oilfield) 3 4 7
Alaska 4--5 3-4 8
Low-production Well in America 12-24 2-3 20
Offshore oilfield in Malysia 5-6 8
North Sea (BP and other 7 oilfields) Average 4 3-4 8Notes:Besides oilsand in Alberta and heavy oil in Orinoco,there is additional $2-3 of discovery cost.Resource:Dr.Leonidas P. Drollas,(deputy director of GES and chief economist),”We have plenty of Oil, only need more investment”. 2006.1.25.
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NYMEX Option Position and WTI Oil Price
Based on recent years’ analysis, the long strength of oil funds in NYMEX is in high positive correlation with WTI price trend.
The main cause of oil pricing hiking since 21st century is major banks, hedging funds and other investment capital swarming into oil futures market. Oil futures has already became a speculation tool. International oil price has seriously divorced from supply-demand law.
Derivatives Trading Pushing Up Oil Price
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Geopolitics Influencing Oil Price in a Long-Term
Geopolitics has always been an important influencing factor of oil price. The upheavals in Iran, Iraq etc. once drove oil price to great volatility.
Source: BP Energy Statistics 2007
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Conversion Rate for US Dollar Influencing Oil Price
The depreciation of US dollar provides the thrust for oil price soaring up. After
remaining at $62-68 in the second quarter, crude price finally made a break
through, and climbed up steadily. Actually since June 14th, the US dollar effective
exchange rate index (EERI) has been declining from the high level of 83.27 to 80.
Many funds are
manipulating futures
market as a hedging tool
to tackle US dollar
depreciation. The net
long position keeps
increasing until making a
record of 127491 lots.
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With rapid development of global economy, world demand for oil energy keeps rising, and oil exploration and production costincreases accordingly. Moreover, the upheavals in main oil producers and speculation funds in oil futures market drive international oil price soaring up, which will affect the sustainable development of world economy and petroleum industry.
It is forecasted that the oil price will keep fluctuating at a relatively high level, which requires profound study on the oil price, and deep communication .
Conclusion
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Thank You!